By Val Cipriani, Investors’ Chronicle, November 30 2022:
Renewable energy infrastructure trusts are taking a relatively small hit from the electricity generator levy, as its effect on their net asset value (NAV) is offset by high power prices and inflation in the latest round of portfolio updates – but share prices are still recovering quite slowly.
In the 17 November Autumn Statement, chancellor Jeremy Hunt announced that a temporary 45 per cent levy would apply on the “extraordinary returns” being made by electricity generators. The levy affects electricity sold above £75 per megawatt hour (MWh), but only if generation is above 100GWh per year and after a £10mn allowance…
But the electricity generator levy announcement is still a mixed bag for renewable trusts. One the one hand, it puts an end to the uncertainty and allows generators to keep at least a portion of their extra profits (unlike a cap would have done). On the other hand, the price level is lower than many hoped for, which may discourage investment in the UK. For comparison, the European Union intends to tax excess profits generated above €180 (£155) per MWh…
Since the levy was announced, various renewable energy trusts have given updates on its expected impact on their NAV. JLEN Environmental Assets (JLEN), Foresight Solar Fund (FSFL) and Bluefield Solar Income Fund (BSIF) originally calculated their 30 September 2022 NAV before the Autumn Statement, attempting to account for the impact of a potential revenue cap. They have since updated the calculations with the details of the energy generator levy. The switch resulted in some NAV readjustments, but overall NAV returns for the quarter have remained in positive territory for all three (in the region of 1 per cent)…
Power prices and inflation have so far offset the effect of both the levy and the increase to discount rates caused by higher bond yields. However, the market is being slow in taking notice…
James Carthew, head of investment company research at QuotedData, argued that discount rates and the expectation of a windfall tax were the two main uncertainties facing renewable energy trusts.
“I do feel like people are starting to believe the NAVs again, and may be be a bit more encouraged to put their money back,” he said.
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